How your phone fees subsidize golf resorts

Consumers pick up the tab for landlines in wealth enclaves

A U.S. government program aimed at subsidizing phone lines in remote areas is instead lavishing billions of dollars on wealthy enclaves at the expense of consumers, according to a new study. Fees tacked onto Americans’ phone bills are going to phone connections that cost thousands of dollars for a single landline.

The Federal Communications Commission’s “Connect America Fund,” created in 1997, aims to provide landline services for remote rural areas. But the 10 most expensive annual subsides per phone line ranged from nearly $6,000 in Texas (for 769 lines) to $23,500 in Washington state (for 16 separate lines), according to the report by George Mason University Professor Thomas Hazlett — former chief economist at the FCC — and Scott J. Wallsten, vice president for research and senior fellow at the Technology Policy Institute, a Washington, D.C.-based think tank.

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Although this fund was intended for rural areas and makes up part of the “Universal Service Fund” fee tacked onto fixed-line phone bills, it supports phone service by giving subsidies to telecom companies in areas like the Hawaiian island of Maui, the Breckenridge, Colo., resort area, and gated golf communities outside Scottsdale, Ariz., Hazlett says. “The subsidies have been wasted, padding the costs of rural phone companies and delivering only pennies on the dollar,” he says. The fund has a cap of $4.5 billion a year and, as of October 2011, includes broadband.

Consumer advocates agree that accessing rural areas is a complex, if expensive, problem. “The fund has never been means tested and the Telecom Act of 1996 strongly affirms that principle,” says Mark Cooper, director of research at the Consumer Federation of America. “Congress did not give the FCC the discretion to pick and choose which high-cost area should get subsidies.” By statute, Wigfield says, subsidizing U.S. landlines is meant to ensure that rural phone rates are reasonably comparable to those in urban areas. “It’s never been based on income,” he says.

To be fair, the FCC has taken steps “to end waste, fraud and abuse” Wigfield says, “while adopting measures to connect millions of currently unserved Americans to broadband.” These reforms, which took effect in January 2012, include capping subsidies at a maximum of $250 a line per month, he says, and they free up resources to expand broadband connectivity to all of rural America. That still works out to $3,000 a year for one phone line. “It’s a failed government initiative that taxes urban phone users,” Hazlett says.

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There is a possible alternative to the highest subsidies in hard-to-reach areas: Satellite phones. They would cost a maximum of $600 per line annually for the most remote areas, Hazlett says, or no more than $173 million per year based on current retail prices. “We are not ignoring the least expensive options,” Wigfield says. There is a catch, however. While the reforms do include a fund that would use satellite and wireless for areas too expensive for fixed lines, he says, a lot of broadband available by satellite is slower than FCC standards.

This isn't the first time the FCC’s Universal Service Fund has come under fire for accusations of waste. A separate government “Lifeline” program targeting low-income Americans — and designed to ensure they weren’t cut off from jobs, families and emergency services — gave mobile phones to consumers who hadn’t actually proved they were eligible to receive them, according to a Wall Street Journal report in January 2013. That program cost $2.2 billion in 2012. Lifeline, originally started in 1984, was part of a separate set of reforms in January 2012 to prevent abuse, Wigfield says.

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